Exam 23: Six Debates Over Macroeconomic Policy

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Economists

Which of the following is correct?

Which of the following is correct?

An economist advising a central bank intending to reduce the inflation rate would likely point out that

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Of means tested programs and IRA's, which lower the rate of return on saving?

Economists

If the public correctly perceives that the central bank will reduce inflation, then

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

The political business cycle refers to

In which cases were tax cuts followed by robust growth?

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Which of the following is not correct?

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.